Wholesale growth tempers profits slide at Telecom Egypt

Aggressive pricing cuts into voice revenues

Telecom Egypt saw consolidate net profits slip 4.8% to EGP557 million ($104 million) in the first quarter of 2008, as the operator experiences greater competitive pressure on its voice revenues and retail segment.

In the three months to 31st March, 2008, consolidated EBITDA before provisions amounted to EGP1.2 billion ($224 million), 11.8% down from the same period in 2007. Akil Beshir, chairman and CEO, Telecom Egypt, remained positive, saying the figures were in line with seasonal expectations for voice traffic.

"Our business is seasonal and this has a notable bearing on both retail voice traffic, particularly in respect of international calls, and on revenues derived from new connections," Beshir said in a statement. "For this reason, comparisons with the fourth quarter of 2007 are misleading. Year-on-year comparisons show that, despite market pressures, total sales revenues were recorded at similar levels at EGP2.4 billion ($448 million).

Total retail revenues slipped to EGP1.4 billion ($262 million) during the quarter, compared to EGP1.5 billion ($280 million) last year. The decline was attributed to the fall in total voice revenues and aggressive pricing campaigns by rival mobile operators.

However, this was partly offset by positive growth was seen in its wholesale business, where - thanks to market liberalisation - revenues now comprise 40% of the group's total revenue base. Total wholesale revenues for the three-month period stood at EGP952 million ($178 million), compared to EGP852 million ($159 million) in 2007.

Beshir added: "There is little doubt that the emphasis of our business during the first three months of the year was on expanding wholesale services to capitalise on the growing demand for telecommunication services in the domestic market.

"Increased promotional activities by the mobile operators have rapidly accelerated the development of the mobile market in Egypt and heightened demand for access to our extensive, highly-modernised network. Total wholesale revenues have increased by 12% compared to the same period in 2007 and now comprise 40% of our total revenue base. This has offset the pressure we have experienced on voice revenues within our retail segment during the period."

In terms of subscriber numbers, the number of fixed-line customers grew 3.3% year-on-year to 11.2 million, with net additions declining 71.1% from the year earlier. ARPU has also slipped 11% from 2007 to EGP49.2 ($9.20). ADSL accounts improved 133.9% to 259,713 subscribers, lifting Telecom Egypt's retail ADSL market share to 53.8%, compared to 46.5% last year.